Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Thursday, May 17, 2012

Cost Basis and Facebook GRATs

Unknown-2I previously blogged about how the Facebook insiders plan to insulate their shares of stock through the use of GRATs. One Wall Street Journal reader inquired what would happen to the cost basis of the shares in the GRAT. If the stock comes out of the GRAT with a value of $31.50, the cost basis will still be the value of the shares when they were put into the GRAT, which was less than $1.85. This would lead to higher appreciation on the asset, and then higher capital gains taxes.

One expert attorney has pointed to other tax-saving actions that the founders could take. They can wait until the shares “pop” in value and then buy them for cash. There may be some limitations on buying them back immediately, but the move would result in an exchange of no-basis stock for no-basis cash. The Facebook shares would then just go back into the founder’s estates. This would avoid capital gains on appreciation, but the shares would be in their estate.

See Laura Sanders, More on Facebook Insiders’ Estate-Tax, The Wall Street Journal, May 16, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


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